Apple enters a new dimension

Apple’s Q3 results announcements on the 19th July, 2011 and some of the other recent news around Apple, have added a certain shocking fact to the technology industry. They are not the biggest company in this space by accident, and they will continue to grow substantially from here.

Why is this so obvious from the recent announcements?

– They shipped record numbers of iPad’s and iPhone’s again this quarter. 9.2m and 20.8m respectively.

– The key factor is NOT this growth, it is the total and the room for expansion. There are now 220m IOS devices, most of which are connected to iTunes and the revenues this generates

– Apple put aside a percentage of the mobile revenue, into a holding account, to not show as much profit as they might. Not to fiddle the books, but to pay for future planned upgrades to the functionality in the platform.

– So everyone that has bought an iPad and an iPhone or an iTouch have also bought an upgrade plan. Everyone can upgrade for free, unlike the early mistake with the iTouch, where they charged a nominal amount, and lots of users didn’t upgrade.

– Free upgrades means more people will upgrade, which keeps more clients on the same level of IOS and lessens Apple’s and App developers support costs substantially. The ease of use of upgrades makes this a no brainer if free.

– It also ties all iPhone / iPad users into the iCloud as a standard part of the IOS features, allowing App developers to use the iCloud without worrying about the user being subscribed, learning again from the MobileMe mistakes where the bulk of users did not subscribe.

– Regional growth is still there for Apple. They saw huge increases in China, and several other emerging markets. Each iPhone / iPad sold then generates subsequent revenues on iTunes in Music, Movies, and the biggest seller App’s. 15bn Apps so far. But they have barely touched these markets, having only launched in the last quarter, so more growth will come from the international base.

– Corporate uptake is increasing at a rapid rate, and this will legitimize the iPhone at the workplace. (see below).

IOS for iPhone / iPad / iTouch in the technology space with 220m devices has become a significant marketplace in it’s own right. Apple own 30% of a lot of the sales on App’s, and undisclosed amounts on other media. However this is a spiraling revenue that grows with the sales increases in mobiles.

Why would the music industry accept a $25 p.a. fee for people with pirated (and ripped legitimately) music to become fully cloud based? Well there are 220m reasons. And once you are in the cloud, then chances are you will stay there for a few years.

Given the geographic opportunities for expansion, and the up sale on devices through iTunes and the iCloud facilities, as well as the pass-down sales for people who upgrade and then give their old devices to family or friends without a device, the 220m devices will continue to grow.

Bear in mind when you pass your iPad1 to your 5 year-old, his tastes in App’s are different from yours, and he is likely to ask you to buy him a few.

The other significant thing for iPhone yesterday from the results is the sheer number of firms that are adopting the iPhone as the office standard. This will impact the growth positively, and will also allow for the more commercial applications space to become a full marketplace.

Estimates given yesterday were that 91% of the Fortune 500 were working to see if they could utilise the iPhone as the company standard phone, and 60% had started the process in earnest. If the large firms are doing it, the smaller, more dynamic firms, have already done it. The corporate tipping point has been reached, and tipped.

On the laptop front the Mac’s have again been significantly outselling their PC counterparts. Mac laptop growth was 5x IDC estimates for PC based laptop growth. The Macbook is now the laptop of choice for 1 in 10 laptop users. And increasing. Watch any movie these days, and see if you can spot a PC, rather than a Mac Pro or and iMac or an iPhone…..

The other significant event, which will affect the results of Apple in future years, is the victory in the patent case against HTC for their use of the Android platform. If this is upheld in December then the Android vendors as a whole could be in a position of having to pay Apple for using parts of Android. This may seem insignificant, but as we tweeted earlier this week, Microsoft make more revenue from patent licenses on Android than they do from Wndows Mobile. This could be a significant revenue stream for Apple if upheld, and allows Apple to also succeed if Android succeeds.

We are not industry analysts at worldflow, so we are not trying to predict revenues, or share price, or impacts, but one thing is sure, as practitioners in the finance industry, we can see a growth market that is right in front of us. In fact in most of our hands.

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